Lauria v. Biosante Pharms., Inc.

968 F.Supp.2d 951

Thomas LAURIA, on behalf of himself and all others similarly situated, Plaintiff,

v.BIOSANTE PHARMACEUTICALS, INC. and Stephen Simes, Defendants.

Case No. 12 C 772.

United States District Court,

N.D. Illinois,

Eastern Division.

Sept. 11, 2013.

Amelia Susan Newton, Leigh R. Lasky, Norman Rifkind, Lasky & Rifkind, Ltd., Chicago, IL, for Plaintiff.

David H. Kistenbroker, Ashley John Burden, Carl E. Volz, Dechert LLP, Chicago, IL, Francis P. McConville, Faruqi & Faruqi, LLP, New York, NY, Nicholas Porritt, Thomas Gottschlich, Levi & Korsinsky,LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION AND ORDER

JOAN B. GOTTSCHALL, District Judge.

BioSante is a specialty pharmaceutical company focused on developing products for female sexual health and oncology. BioSante developed LibiGel, a low-dose testosterone gel that is applied to the skin on the upper arm. LibiGel was meant to treat women with hypoactive sexual desire disorder (“HSDD”), which is a form of female sexual dysfunction (“FSD”). Stephen Simes is BioSante's Vice Chairman, President and Chief Executive Officer. Plaintiffs Thomas Norgiel and Jeffrey Rennell assert that they purchased shares of BioSante at an artificially inflated price. They filed this case on behalf of themselves and others who purchased BioSante shares during the class period.

BioSante and Simes have moved to dismiss, arguing that the complaint's fraud allegations do not satisfy Federal Rule of Civil Procedure 9(b) or the pleading requirements of the Private Securities Litigation Reform Act (the “PSLRA”), 15 U.S.C. § 78u–4 et seq. Alternatively, they contend that their forward-looking statements are protected by the PSLRA's safe harbor, the complaint fails to allege facts that demonstrate scienter, and the plaintiffs' claim under § 10(b) of the Securities Exchange Act, 15 U.S.C.A. § 78j(b), is unavailing as they failed to establish that a defendant is directly liable under the Act.

For the following reasons, the court finds that the complaint fails to satisfy the PSLRA's pleading requirements. All of the defendants' remaining arguments turn, in whole or in part, on allegedly false and misleading statements allegedly made by BioSante or Simes. As detailed below, the court cannot ascertain which statements were allegedly misleading, the reason or reasons why each statement was misleading, and whether the plaintiffs have sufficiently alleged facts creating a strong inference of scienter. Thus, the motion to dismiss is granted, and the court will not reach the defendants' alternative arguments. The plaintiffs are given 28 days to amend their complaint if they choose to do so.

I. Background¹

A. The LibiGel Trials

Clinical trials typically have three phases:

• Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its short-term safety, dosage tolerance, metabolism pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indication of its effectiveness.

• Phase II usually involves trials in a small patient population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks, and evaluate preliminarily the efficacy of the drug for specific indications.

• Phase III trials usually involve further evaluation of clinical safety and efficacy by using the drug in its final form in a larger patient population.

Compl. at ¶ 66 (Dkt. 90).

Treatment with LibiGel in a 2004 Phase II double-blind, placebo-controlled clinical trial demonstrated significantly increased satisfying sexual events in surgically menopausal women with FSD. According to the plaintiffs, BioSante's 2004 Form 10–K represented that “the Phase II trial showed ‘statistically significant’ results for the primary endpoints of the study. The study consisted of 46 surgically menopausal women, and was powered to determine which dose of LibiGel would have the greatest effect on women's sexual activity.” Id. at ¶ 69. BioSante also reported a “238 percent increase from baseline (p < 0.0001) 10 in the frequency of satisfying sexual events as measured by individual patient diaries” and characterized the result as “significant versus placebo (p < 0.05).” Id. BioSante Phase II's data indicated there was “an effective LibiGel dose for the treatment of HSDD in women, and that LibiGel was well-tolerated during the course of the trial, and had a safety profile similar to that of the placebo, with no women discontinuing use due to adverse events.” Id.

BioSante subsequently conducted three Phase III double-blind, placebo-controlled studies of LibiGel. Two studies were meant to examine efficacy, and the third was a cardiovascular and breast cancer safety study.

On April 5, 2011, Simes spoke at the Biocentury and Thomson Reuters Future Leaders in the Biotech Industry Conference. He commented on the LibiGel Phase III clinical development trials, stating:

In terms of the market for LibiGel, there are good indications. I mentioned several times, there is nothing approved for this indication. However, in 2009 we believe the numbers for 2010 will come in about the same once we get the IMS data. But there were 4 million testosterone prescriptions written off label for women for this indication. And that tell[s] us in primary research that in fact if [their was] an FDA approved product, they would much prefer to use that in which the vast majority in this case, 96% of their women to the approved product [sic].

We believe the market potential is at least $2 billion. Some of you know the magic there is the erectile dysfunction market in the U.S. is a $2 billion market. We think the market for women is bigger than the market for men as evidenced by certain publications that some of you might have seen over the years, with an article in the Journal of the American Medical Association in a younger population of women, 18 to 59, showing that 43% of these women reported experience in sexual dysfunction at one point or another.

Id. at ¶ 39.

On April 15, 2011, Simes presented at the Future Leaders in the Biotech Industry Conference and told attendees:

If you look at our Phase II data, a similar dose by the way. We delivered 300 micrograms a day, which is exactly the dose shown in the past to be effective. Now in ten published Phase III [sic] studies we showed a remarkable 238% increase in the number of satisfyingsexual events, which was statistically significant significantly better than placebo. We hope to repeat these data in our Phase III studies. Now we've powered the studies to show a difference of one from placebo, one sexual event from placebo, even though in this study we showed a difference of over three satisfying sexual events over placebo.

Another way to look at the data, and how much we further see this, and you can see in the first month, and this is four week increments is how these are measured, an[d] it's the last four weeks of the study compared to the base line four weeks, number of the events compared to number of events. At baseline our women had about 2.5 satisfying sexual events. And of course I am compelled to say, don't ask me what a 0.5 sexual event is. However in the first month over four weeks of therapy there was an increase of 100% in the [number] of satisfying sexual events overly out [sic] of this 238% increase over the course of the three months study.

Id. at ¶ 95.

During an October 21, 2011, presentation at the BioCentury Newsmakers in the Biotech Industry Conference, Simes again commented on LibiGel, stating:

I've chosen to concentrate on LibiGel today because it is a near-term driver, it's a near-term value producer for our Company and we have near-term data.... In terms of the potential markets, again we have some quite definitive numbers here. Last year in the U.S., there were over 4 million testosterone prescriptions written-off label for women. Now this is a combination of IMS reported prescriptions as well as compounded testosterone reported prescriptions in primary research.... We think the market potential for female sexual dysfunction in the U.S. is over $2 billion, the magic to $2 billion is that the size of the male erectile dysfunction market [sic].

Id. at ¶ 40.

In addition, during an October 25, 2011, presentation at the BioTechnology Industry Organization Investor Forum, Simes stated:

In terms in the market, we are very, very excited here. As you can imagine we think it's a big market, but there are some objective data. In 2010, according to IMS and other primary research there are over 4 million testosterone prescriptions written off-label for women for this indication.... We believe then the market for a drug for female sexual dysfunction and the market here is about $2 billion. The magic to the 2 billion is that the size of the erectile dysfunction market in the U.S.: Viagra, Levitra, and Cialis.

Interestingly from published work, we think that the market for women is at least as bigger [sic] as the market for men and probably larger. And publications in JAMA and New England Journal indicate that anywhere from 30 to 50% of women report a sexual functioning issue. Happily, we have an issued patent that covers or will protect LibiGel until mid–2022, and we expect other patent activity even by the end of this year.

Id. at ¶ 41.

B. The Confidential Witness

A former BioSante employee who served as the Senior Project Manager for the LibiGel Phase III safety study from March 2008 through September 2011 is a confidential witness in this case. She stated that a typical clinical trial dropout rate ranges from 5% to 10%. She believed that the LibiGel Phase III efficacy and safety trials had unusually high dropout rates, reaching almost 20% per month in 2010–11. According to the confidential witness, this problem was consistent throughout her time at BioSante, was a cause for concern, and was discussed by BioSante's senior management. The confidential witness was “under the...